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April 19, 2013

How Volatility Feeds On Itself

Having seen an uptick on volatility as measured by the VIX in the last few days, I find that this is a good time to talk about a phenomenon many people do not know. Volatility tends to be persistent, with low volatility leading to more low volatility, and high volatility leading to more high volatility. But more interesting still, volatility can feed on itself, with increases in volatility leading to further increases in volatility and decreases in volatility leading to further decreases in volatility. And there is a simple reason for this, which I will explain in this article.

http://seekingalpha.com/article/1350161-how-volatility-feeds-on-itself